Unit 2(2.1-2.6) Flashcards
What is Microeconomics
the allocation of resources within specific markets
what is macroeconomics
It refers to the allocation of resources within the economy as a whole(multiple markets)
What are markets made of
demand and supply.Price adjusts to reach an equilibrium between both
what is equilibrium
when at a given price, the quantity supplied equals the quantity demanded
What is disequilibrium(Surplus and Shortage)
Surplus: when the quantity demanded is greater than the quantity supplied
Shortage:when the quantity supplied is greater than the quantity demanded
what is the price mechanism
the process where the price adjusts to bring equilibrium in a market
what does the price act as in a market
an incentive to producers to produce more or less
a signal to other producers to enter or exit the industry
a rationing device(it affects the quantity demanded
what happens if demand rises in a market
the price will rise. This will:
act as an incentive for existing producers to produce more
encourage other producers to enter the market
reduce the quantity demanded
What does a demand curve show
shows the quantity consumers are willing to buy at each price
influences on demand(except for price)
prices of other goods and services
income levels
marketing activities of the business
size of the buying population
what is a contraction in a demand curve
when the price rises and there is a decrease in the quantity demanded
what is an extension in a demand curve
when the price falls and there is an increase in the quantity demanded
the 3 economic questions
what to produce,how to produce and for whom
when does a shift in demand occur
occurs due to a change in factors other than price.
what is a shift in demand
there is a change in quantity demanded at each price
what causes an outwards shift in demand
more effective marketing
increase in income( only for normal goods)
an increase in the price of a substitute
a decrease in the price of a complement(consumer needs both the products)
what causes an inward shift in demand
a reduction in marketing activities
a decrease in income
a decrease in the price of a substitute
an increase in the price of a complement
a decrease in the market size( fall in the number of buyers)
what is an individual demand curve
shows the quantity an individual consumer is willing and able to buy at each price
what is a market demand curve
shows demand for the market, constructed by adding together the quantity demanded by all the different consumers
What does a supply curve show
shows the quantity that producers are willing and able to produce at each and every price
factors that affect supply
the number of producers
the cost of resources(such as material and labor
state of technology
the way in which work is organised and managed
taxes on producers or subsidies for producers
what causes an extension in supply
a rise in price which increases the quantity supplied
what causes a contraction in supply
a fall in price which reduces the quantity supplied
what causes an outward shift in supply(Increase)
more producers
lower costs
better technology
more capital equipment
what causes an inward shift in supply(decrease)
fewer producers
higher costs
poorer working methods
less capital equipment
what is an individual supply curve
shows the quantity an individual producer is willing and able to produce at every price
what is a market supply curve
adding together the quantity supplied by all the different producers
what direction is a demand curve
downward sloping
what direction is the supply curve
upward sloping
what happens in a shortage
when the quantity demanded is greater than the quantity supplied.Price will then increase which reduces quantity demanded and increases quantity supplied until price equilibrium is reached
What happens in Surplus
when the quantity supplied is greater than the quantity demanded. Price will fall which reduces the quantity supplied and increases the quantity demanded until equilibrium is reached
what does an indirect tax do
increases producer costs and shifts supply inwards
what does a subsidy do
reduces producer costs and shifts supply inwards
